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Covid-19 loan repayment picture starts to form

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Published: 23 Aug 2022

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The first of many forthcoming government updates on Covid loan scheme repayments were released, but what are the potential outcomes for fraudulent activity, writes Brian Cantwell.

The UK government’s Covid-19 financial support closed over a year ago, on 31 March 2021. 

Consisting of corporate and business loans through the Bounce Back Loan Scheme (BBLs), Coronavirus Business Interruption Loan Scheme (CBILs), and Coronavirus Large Business Interruption Loan Scheme (CLBILs), repayments only commenced after the first 12 months of the loan. 

New figures 

Now a picture is starting to emerge across the lending landscape of the loan schemes. 

In total, businesses have drawn 1,636,642 facilities, totalling £77.1bn from CBILS, CLBILs and the BBLs says the UK government. 

The first government figures on repayments show a mixed picture, with some loans already repaid in full. 

At the other end of the spectrum, the government suspects that roughly 18000 suspected fraudulent BBLS loans and 100 suspected fraudulent CBILs loans have been made, although this is via lender reporting rather than court convictions.  

This could put the total BBLS fraudulent loans at £9bn, and around £500m for CBILs. 

In short, the Department for Business Enterprise Innovations and Skills (BEIS) said: 

  • Over 85% of the facilities have either been fully repaid or are meeting monthly repayments as scheduled 
  • 7% of all facilities have already been paid back in full, worth £9bn 
  • 8% of all facilities have been subject to default 
  • 28% of facilities which had a Bounce Back Loan facility have accessed one or more Pay As You Grow options 

CBILs

  • More than 78% of CBILS facilities are on schedule, and more than 18% of scheme facilities are fully paid back.  
  • Just over 1% are currently in arrears (but not yet progressed to default), and fewer than 1% are currently in default (but have not yet progressed to a claim by lenders).  
  • The government guarantee has so far been settled (that is, claimed by lenders and paid out by the British Business Bank) on fewer than 1% of the total loans. 

CLBILS 

  • More than 73% of CLBILS facilities are on schedule, and 26% of scheme facilities are fully paid back.  
  • Fewer than 1% are currently in arrears (but not yet progressed to default), and none are currently in default.  
  • The government guarantee has so far been settled (that is, claimed by lenders and paid out by the British Business Bank) on fewer than 1% of the total loans. 

BBLS 

  • More than 78% of BBLS facilities are on schedule and almost 7% of all scheme facilities are fully paid back.  
  • Around 7% of all scheme facilities are currently in arrears (but not yet progressed to default), and 4% are currently in default (but have not yet progressed to a claim by lenders).  
  • The government guarantee has so far been settled (that is, claimed by lenders and paid out by the British Business Bank) on fewer than 1% of the total loans. 

Why were the schemes so vulnerable? 

The schemes were criticised in 2020 for 100% government guarantees to allow lenders the confidence to make the loans through their balance sheets.  

The government had pushed for 80% guarantees, which stalled as the resulting background checks would have the banks underwriters too long to process and businesses would have failed quickly as the country locked down, until the government agreed to fully back the loans with complete guarantees. 

As a picture of the scale of fraud began to form by the beginning of 2022, Treasury minister Lord Agnew quit his post in protest at the government’s handling of the loan scheme design, citing ‘schoolboy errors’ and ‘desperately inadequate’ measures to prevent fraud. 

Since then, many stories of fraud, suspected of resulting in a loss of £4.9bn to the taxpayer have emerged in the press.  

Two members of a criminal gang that defrauded £10m of BBLs loans were recently handed a joint sentence of 33 years in prison, while at the corporate end of the lending tree Greensill Capital had guarantees for loans to GRG Alliance worth £400m rescinded by the government in protest of its abuse of the scheme’s design. GRG is currently the subject of a Serious Fraud Office investigation. 

Handling fraudulent actions – criminal and civil

The disparate enforcement actions and wide variance in conduct when applying for loans has raised questions regarding enforcement action on the suspected £9.5bn of fraudulent loans. 

In a blog post looking at how criminal and civil enforcement action has been taken and may be taken against dishonest or criminal fraudsters, Max Shephard and Raoul Colvile, barristers and associated members at 4-5 Chambers see s.2 of the Fraud Act 2006 as a likely criminal charge. 

This, or other similar offences, might be relevant in various circumstances, they say. 

  1. in cases of identity theft – where the identities of real people were stolen, fake companies set up in their name, and the maximum amount available (£50,000) claimed,  
  2. where a legitimate company inflated their turnover in order to obtain a higher loan than they were entitled to (where loans were capped at 25% of turnover), and  
  3. where companies who were not in fact adversely affected by the pandemic made a claim (where adverse impact was a pre-requisite for entitlement). 

The first point would require sophisticated investigation and prosecution; the second two charges would also require this but could be problematic for a jury, should technically and factually complex defenses from accounting be raised, they write. 

Many cases are now in the system and will come to trial in the coming year, with at least one case of BBLs fraud being used to fund terrorism. 

The blog post does draw praise for civil enforcement actions already taken by the government. 

“Director disqualifications are useful tools as they prevent people from directly, or indirectly, becoming involved in the promotion, formation or management of a company, without the permission of the court (and so they can be used to target unsuitable directors).  

“To date, the Insolvency Service has successfully achieved 106 director disqualifications and 48 bankruptcy restrictions. 13 companies have also been wound up in the public interest,” they write (4-5 Gray's Inn Square)